Diversify Your 1031 with Self-Storage Investments
In many cases, investors who are involved in the world of 1031 exchange investment properties are diversifying their interests and investing in multiple property types. At 1031 Exchange Place, we’re here to do more than provide intermediary services. In addition to helping you carry out your 1031 tax-deferred exchanges, we’re also here to offer expertise in the world of 1031 replacement properties. Here we’ll go over one kind of investment that’s been blowing up over the last few years: self-storage.
The Basic Numbers
Also called mini-warehouses, this industry skyrocketed in 2017, going six straight months setting records for construction spending at one point. The industry’s largest player, Public Storage, created over $500 million in revenue just in the first quarter of 2017, with fantastic margins (more on this in a bit).
Roots of the Trend
How did this come to be? Well, you can actually trace this trend back to the US financial crisis that began roughly a decade ago – by the end of this crisis, funding for new construction was basically impossible to find. There’s still a backlog from this period, in fact.
At the same time, though, investors found that those assets continued to perform well during the recession. Storage centers became a great hedge against similar future issues.
Low Costs, High Demand
Part of the major benefit of these kinds of facilities is how easy they are to manage. They’re very cheap to build, plus require incredibly low staffing demands compared to other buildings of a similar size. This leads to fantastic margins: Remember that half-billion-plus profit we noted for Public Storage earlier? They booked that despite just $149 million in operating costs, for a margin of nearly 75 percent.
The resulting popularity of these investments has grown so much that even some local governments are taking notice. Places like New York and Los Angeles have attempted to limit new self-storage construction projects, with concerns that this industry is using up too much of the available real estate that’s needed for other industries that create more jobs.
In some cases, big venture firms are taking things even further and offering services beyond just self-storage. We’re talking about areas like moving items to and from warehouses, posting photographs online, and related services.
Some of the largest players in this space, while still excited about the profits they’re seeing, have advised caution in certain areas. They’re forecasting decreases in consumer spending that will result in less need for storage space.
But with a large percentage of this market controlled by smaller or single owners, this building increase might not slow down anytime soon. Such owners are less concerned about diluting the market, and occupancy rates at self-storage facilities across the country are still very high.
If you’re a 1031 exchange property investor looking to manage self-storage investments for your exchange, speak to one of our advisors at 1031 Exchange Place. We can show you the latest self-storage DST deals.
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